Former managing director Andrew Lindberg made the admission in a profuse letter of apology he wrote last December on the advice of an American corporate crisis expert, Peter Sandman.
Mr Sandman advised AWB to "over-apologise" for the scandal.
But the Cole inquiry has heard that after it was written, AWB's chairman Brendan Stewart and other directors decided against releasing it.
”Truly sorry”
At the time the letter was drafted, AWB was engulfed in a public backlash over the results of a United Nations inquiry into its oil-for-food program which found the Australian wheat exporter had paid A$290 million in kickbacks to Iraq.
In the letter, titled Draft Statement of Contrition, Mr Lindberg admitted AWB paid kickbacks in breach of UN sanctions against Iraq and offered his deep apologies.
"Even though there were warning signs to some employees that this may have been occurring AWB did not challenge these payments and was not alert to the potential consequences of making these payments," Mr Lindberg wrote.
"For this we are truly sorry and deeply regret any damage this may have caused to Australia's trading reputation, the Australian government or the United Nations.
"We simply should have done better, and I am deeply sorry we didn't."
In the statement, Mr Lindberg also admits failing to consider fully the purpose of the UN's trade sanctions against Iraq at the time it was paying kickbacks to Saddam's government.
He goes on to apologise for AWB's lack of internal system of checks and balances to ensure the UN's oil-for-food program was not abused.
Regret was expressed about an arrangement AWB had to collect a $US8 million debt from Saddam's government on behalf of a company known as Tigris, linked to resources giant BHP Petroleum.
The explosive letter was released by the Cole inquiry on Thursday, after AWB lost a court battle to keep it confidential.
Several AWB directors including Mr Lindberg may now be asked to front the inquiry once again to be quizzed about why the document was drafted but never released by the company.
The inquiry's legal team may also demand AWB produce other documents it has tried to keep secret.
Stark contrast
Opposition foreign affairs spokesman Kevin Rudd said what Mr Lindberg wrote in his letter stood contradicts what he and his fellow directors told the Cole inquiry during the past five months.
"I think that's disgraceful. It's a disgraceful act of dishonesty on the part of the AWB and frankly Australians will be disgusted by it," Mr Rudd told reporters.
"When you look at the impact of all this, Australia's hard working wheat farmers right across this country put their trust in the AWB and the AWB have betrayed that trust."
Mr Lindberg's letter was first shown to the Cole inquiry in March, but commissioner Terence Cole prevented its publication on the grounds of legal confidentiality claimed by AWB’s lawyers.
AWB claimed the letter was handed to the inquiry by mistake and launched legal action in the Federal Court to keep it secret.
Justice Neil Young ruled the letter had no legal protection and there was no need for him to stop Mr Cole releasing it.
Meanwhile, the federal government has gagged public servants from answering questions about the kickbacks scandal when Senate estimates hearings resume next week.